Energy

Alt Energy Stocks Follow Crude Oil's Ups and Downs

Alternative Energy sources
thinkstock
In the four and a half trading days since last Thursday, the price of West Texas Intermediate (WTI) crude oil for January delivery has dropped about 3.7%. Solar panel maker First Solar Inc. (NASDAQ: FSLR) has dropped about 3.9% in the same period, and ethanol maker Pacific Ethanol Inc. (NASDAQ: PEIX) has dropped about 3%. Coincidence or … cue spooky music?

Even alternative energy stocks like FuelCell Energy Inc. (NASDAQ: FCEL) and Clean Energy Fuels Corp. (NASDAQ: CLNE) show the same track as crude oil. Only FuelCell Energy can boast a positive gain over the past few days, and that was nearly entirely due the company’s earnings beat on Monday. Look at the chart at the end of this article and the pattern is clear.

Oil prices dominate the energy market the way that Intel dominates the CPU market. And the price of oil’s influence, even on stocks of non-hydrocarbon energy sources like solar and fuel cells, is unmistakable. We’ve said before, and we’ll say again, that alternative energy stocks have proved to be a leveraged trade on oil, especially when the price of crude is falling.

Pacific Ethanol jumped more than 300% in the first eight months of the year, before dropping more than half that gain in the three and a half months since then. The reason is simple: ethanol prices are falling to keep pace with gasoline prices. If ethanol costs more than gasoline, distributors and blenders can drive a tougher bargain with ethanol makers.

Whether the bets are long or short, a play on an alt energy stock reflects an investor’s view of the entire energy market. There can and will be unusual events among the alt energy companies, and these will affect the stock prices just as hurricanes in the Gulf of Mexico generally push up crude oil and gasoline prices. In this case, it is best to be guided by the chart.

New 5-day energy chart
Yahoo Finance

ALSO READ: 4 Top Solar Stocks to Buy for 2015 as Demand and Installations Remain Strong

Want to Retire Early? Start Here (Sponsor)

Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?

Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.

Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.